Market Summary

Yield Movements

Between 3 November and 6 February, Malaysia's local currency (LCY) government bond yields curve slightly steepened. Yields fell an average of 3 basis points for maturities of 4 years or less amid improved fiscal outlook as the government aims to reduce budget deficit further in 2026 to 3.5% of gross domestic product, spurring investor demand. Meanwhile, yields rose an average of 4 basis points for most maturities of 5 years and longer as consumer price inflation climbed to 1.6% year-on-year (y-o-y) in January and December from 1.4% y-o-y in November.

Local Currency Bond Market Size and Issuance

Malaysia's LCY bond market expanded a modest 0.8% quarter-on-quarter (q-o-q) to MYR2.2 trillion in the fourth quarter (Q4) of 2025, slower than the previous quarter's 2.2% q-o-q expansion. Both outstanding bond segments posted decelerated q-o-q growths in Q4 2025 compared to the previous quarter - corporate bonds (1.1% vs 4.1%) and Treasury and other government securities (0.5% vs 0.9%) - as reduced issuance capped net growth. Overall LCY bond issuance contracted 14.5% q-o-q in Q4 2025, driven by reduced issuance of government securities (-38.4% q-o-q) as the government had previously front-loaded annual borrowing. Corporate bond issuance grew 4.0% q-o-q, a slowdown from the previous quarter's 55.0% q-o-q growth due to a high base effect in the previous quarter following a policy rate cut in July.

Sustainable Bond Market

Malaysia's sustainable bond market rose to USD19.6 billion on 27.2% y-o-y expansion at the end of 2025, representing 2.6% of emerging East Asian total. Private sector financing comprised a majority (82.1%) of Malaysia's sustainable bond market, summing up to USD16.1 billion, while issuance climbed to USD4.9 billion on 67.3% y-o-y growth in 2025, supported by sustainability sukuk (Islamic bonds) issuances from PNB Merdeka Ventures. On the other hand, the public sector has not issued any sustainable bonds since 2023, but its corresponding outstanding sustainable bonds share still made up 17.9% of the total at end-2025. At the end of 2025, 61.9% of outstanding sustainable bonds carried tenors longer than 3 years, leading to a size-weighted average tenor of 8.1 years.